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CS Executive · Company Law and Practice · Legal Status and Types of Registered Companies

A creditor is owed Rs 3,00,000 by an unregistered company and serves a written demand at its principal place of business. Under section 375, when is the company deemed unable to pay its debts on this ground?

The company is deemed unable to pay its debts if it neglects for three weeks after service of the demand to pay, secure or compound for the sum. Section 375(4)(a) applies to a debt exceeding one lakh rupees, and Rs 3,00,000 qualifies.

  1. AIf it neglects to pay or secure the sum for three weeks after service of the demandCorrect
  2. BIf it neglects to pay for ten days after the demand
  3. CIf it fails to pay within thirty days of the demand
  4. DImmediately on service of the demand

Explanation

Section 375(4)(a) requires a debt exceeding one lakh rupees then due, a demand served as stated, and neglect by the company for three weeks to pay, secure or compound for the sum to the creditor's satisfaction. Rs 3,00,000 exceeds the threshold. Ten days relates to notice of a suit against a member, not to this ground.

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